APR/EAR Calculation & Retirement Accounts?

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1. You have just purchased a new warehouse. To finance the purchase, you’ve arranged for a 30-year mortgage loan for 80 percent of the $ 2,200,000 purchase price. The monthly payment on this loan will be $ 12,000. Therefore, the APR on this loan is _______ percent and the EAR is _______ percent. (Do not include the percent signs (%). Round your answers to 2 decimal places. (e.g., 32.16))

2. You have just made your first $ 1,000 contribution to your retirement account. Assuming you earn an 6 percent rate of return and make no additional contributions, your account will be worth $ _______ when you retire in 35 years. It will be worth $ ______ if you wait 10 years before contributing. (Do not include the dollar sign ($ ). Round your answers to 2 decimal places. (e.g., 32.16))

It seems I got the APR correct but it won’t take me to the correct EAR? I don’t know…

1 Comment
  1. Reply
    May 17, 2011 at 9:26 am

    1. Since you know that the APR is 7.24% (rounded), the conversion formula to EAR is:
    EAR = (1+APR/n)^n)-1
    EAR = 7.49% (rounded)

    $ 7,686.09

    $ 4,291.87
    This is a future value problem. The formula and explanation are at the source below.

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